You may lose much more than deposit

Lucy Macken

Q. We paid a 5 per cent deposit - instead of the usual 10 per cent - for an apartment recently. If we pull out of the sale before settlement, do we forfeit the amount we paid or are we up for the usual down payment of 10 per cent of the purchase price?

Sam, Darlington

A. That depends on the terms of your contract. Depending on the wording, you could be up for 10 per cent of the purchase price but, even if not, your liability won't stop there. The vendor will not only pocket the deposit and keep the house, but could sue you for any further losses if they sell for a lower price, while giving credit for the deposit you have forfeited.

Confused? Take the example of the $1 million house. As well as the 5 per cent or 10 per cent deposit (depending on your contract), if they then resell for, say, $800,000, then they could sue you for their net loss.

Advertisement

Q. Once contracts exchange, how likely is it the vendor will pull out of the sale if there is a much higher offer during the cooling-off period?

Mary-Anne, Annandale

A. Not likely because that cooling-off period isn't theirs. It's the buyer's. The buyer is the only party given a chance to pull out of the sale in that period, not the vendor.

On that note, thank you to readers and those who sent questions this year, and have a happy summer break. Q&A returns in January.

27 comments so far

Buying off the plan in a falling market is a fool's game.

Commenter

Allan

Location

Prahran

Date and time

December 21, 2012, 1:00PM

There was no mention of buying off a plan in that article...

You may as well have said some trains are blue for all the sense your comment made.

Commenter

Alex

Location

Geelong

Date and time

December 21, 2012, 2:05PM

And turkey is best roasted with streaky bacon on the outside.

But what do either of our comments have to do with the above story???

Commenter

Max

Location

Edithvale

Date and time

December 21, 2012, 2:34PM

Keep renting Allan, and with the money you save, invest in some reading comprehension classes. This was a small article on a point of sale contract law, not a renter's rant segment.

Oh sorry, thought it must have been for one of the thousands of flats popping up around Melbourne. Talk about pulling out of contracts, especially off the plan, is all the rage atm.

Credit Suisse latest research note:

"Underweight banks in anticipation of job cuts,payment shocks and declining house prices"

"We are quite pessimistic about the prospect of house price inflation. Housing is 20%-40% overvalued by historical standards. Also, housing demand is extremely low, because potential buyers are very concerned about unaffordability and rising unemployment. If demand remains low relative to supply, house prices could fall substantially. Average home equity could fall disproportionately, making the re-financing of loans more difficult."

http://www.scribd.com/doc/117494670/117438327-document-1005619251

Hang on... 40% falls?? Isn't that what Steve Keen said?

Oh dear.

Oh rcheck yourrenter taunts are souding so hollow. Wasted on me as well because I'm not a renter.

Commenter

Allan

Location

Prahran

Date and time

December 21, 2012, 3:10PM

@ Allan

There are plenty of articles written by different economists pointing to different outcomes that highlight the importance of differing data and differing trends. I could pull out 5 arguing the housing market is heading north and 5 that say south, your comments are always tiring and are biased toward them heading south.

Australians are obsessed with property and do not trust anything else but cash as an investment. Cash is king at the moment but rates are lowering, many of those those cashed up will go buy and this will allow many to offload but does not mean prices will go sky high, they can still decline. The point is, you cannot just decide the answer and find articles that support this. There are many things to consider when buying a property and any investment for the long term and whether you think the market has bottomed or not is not always the right question. But im sure you know all of this.

Commenter

All-ham

Location

Date and time

December 21, 2012, 6:35PM

Allan, you are what (at best) could be described as a troll. Always happy to quote selectively, complete with links to give an air of authenticity. I'm still amused by his willingness to rely on every doom and gloom report (not to mention his reliance on Steve Keen who couldn't even get some basic mathematics right and manipulated statistics without substantiation or proper sourcing). Here's some light reading on Steve Keen's "claims":

September 2008 - house prices will drop by 40% in the next few years. In fact, prices have risen from September 2008 by about 13%. Keen has now backtracked and says that house prices will drop by 40% over the next DECADE. Good luck with that.

GFC - best case scenario for Australian unemployment of 11%, recession worse than 1990 and lasting 1.5 times as long. Unemployment peaked at 5.8% and there was no recession.

Ironic that anyone with even a basic understanding of economics, demography, finance and history can see the Swiss cheese holes in Keen's arguments yet Allan tries to rely on them to generate some air of authenticity. If you want to read a detailed critique, have a look at this:http://www.switzer.com.au/the-experts/christopher-joye/steve-keen-wrong-on-house-prices-again/

PS Allan - I'm still waiting for an explanation of why you claim that just because 1 particular share you invested in with a 30% return is proof positive that the share market is better than the property market (which has consistently higher average returns than the share market and better tax benefits for principal places of residence). Surely average market growth is a statistically better indicator of performance?

Commenter

Michael

Location

Melbourne

Date and time

December 24, 2012, 12:23PM

My daughter sold her house to a buyer. After the contract went unconditional, the buyer's solicitor terminated the contract, stating we had "...hidden the powerlines..." that run alongside the property (always easily visible to anyone who cared to look). My daughter's solicitor advised that she should just let it go as it would be too difficult to pursue. And the fact that the real-estate agent had neglected to secure a deposit of any description meant she was well out of pocket. To this day, I am convinced we should have sued and would have won, but too many people are happy with the easy way out.

Commenter

Tom

Location

Qld

Date and time

December 21, 2012, 2:16PM

Had a similar situration with a commercial property in Hawthorn . Had an 18month settlement in this contract , fortunately unlike Tom's case we did get a deposit . When it came to the final settlement , the developer welshed and we were back to square one . Eventually resold it to a developer who was developing the next door property albeit for a lower amount as the market changed in the meantime . We decided not pursue the original purchaser in view of the enormous legal costs as well as the emotional stress that would be involved , as the developer would have other strategies open to him to frustrate the case , so while technically you can sue to recover you need to look at the whole picture taking into account the costs of doing so , as well as what the defendants could possibly do .